J.P. Morgan earnings: 5 things to look for

America’s biggest bank by assets due to report results on Friday

By

SamMamudi

NEW YORK (MarketWatch) — It’s been a mixed year for J.P. Morgan Chase & Co.

America’s biggest bank by assets
JPM, -0.62%
has been roiled by some of Wall Street’s biggest scandals, including the “London Whale” trading fiasco which has cost it about $6 billion and ruined its reputation as one of banking’s few responsible institutions. Its once-impregnable chief executive, Jamie Dimon, now sees himself profiled by the media in a less-than-flattering light. Read Vanity Fair’s article about Jamie Dimon.

IMF chief economist: Recovery will take decades

But the bank has also seen its stock rebound in 2012, up about 27% this year, lower than most of its rivals though its stock had fallen less than that of Citigroup Inc.
C, -0.23%
and Goldman Sachs Group Inc.
GS, -1.60%
during the financial crisis.

Wall Street analysts foresee rising revenue and profit through at least 2013. Of the 33 analyst ratings for the bank on FactSet Research, 22 are buy/overweight while only two are sell/underweight.

J.P. Morgan will kick off earnings season for the big banks on Friday when it announces its third-quarter results.

Here are five things too look for in the bank’s earnings.

• Outperformance. For the third quarter, analyst consensus is for profit of $1.21 a share on revenue of $24.4 billion, according to FactSet. Those figures would represent year-on-year increases of 18% and 2.8%, respectively. In particular, analysts expect revenue from underwriting and trading — especially fixed income, commodities and currency trading — to rebound from the year-ago quarter. In the past two quarters, J.P. Morgan has handily beaten profit estimates.

Reuters

J.P. Morgan Chase & Co. CEO Jamie Dimon speaks about the state of the global economy at a forum hosted by the Council on Foreign Relations in Washington on Oct. 10, 2012.

• The “London Whale.” In announcing its second-quarter earnings, the bank said losses from trades known as the “London Whale” totaled $5.8 billion. Some of those losses will be booked in the third quarter. Legal costs could also rise due to the London Whale fallout as well as other settlements. Legal costs jumped 30% in the second quarter compared to the previous quarter. Read about some of the dangers of bank earnings.

• Executive changes. While it’s unlikely to get a mention Friday, it’s worth noting that J.P. Morgan has seen a big shakeup in its executive ranks in the past few months. London-based Ina Drew, head of the chief investment office where the London Whale trades took place, was an immediate casualty, but last week The New York Times reported that Irene Tse, head of the North American arm of the chief investment office, and Barry Zubrow, head of regulatory affairs, are also leaving the bank. The Wall Street Journal said Thursday that Chief Financial Officer Douglas Braunstein is likely to move to a different position in the next six months. Read the Journal’s report about Braunstein’s move.

• The danger of Europe. Like many U.S. companies, J.P. Morgan has a sizeable business in the euro zone. On Wednesday, Business Insider quoted Dimon, speaking at a Council on Foreign Relations meeting, as saying that the bank could lose $5 billion “if things go bad.” Read about Dimon’s comments.

• More lawsuits. Even as J.P. Morgan is still clearing up the mess left by the London whale and scandals such as its role in Libor manipulation, another potential crisis has reared its head. On Oct. 1, the New York state attorney general filed a civil lawsuit against the bank, alleging widespread fraud in the sale of mortgage-backed securities. The suit cites $22.5 billion of losses suffered by investors in securities issued by Bear Stearns Cos. in 2006 and 2007, according to the Journal. Bear Stearns was bought by J.P. Morgan in early 2008. Friday’s earnings announcement may bring details on how much the suits — or defending them — could cost the bank. Read about the MBS charges against J.P. Morgan.

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